Unveiling the Power of Intangible Assets in Business
July 7, 2023
As I immersed myself in Alan Murray's interview with the CEO of Fortune Media, I couldn't help but be astounded by the striking transformation in the makeup of Fortune 500 companies and others alike. The tangible assets that once held an imposing 80% of their total value now stand at a mere 20%.
Judging from the interview's facts, the process has accelerated significantly over the past decade. Considering that we regularly engage with various services, how will the shift from tangible to intangible assets affect us? And what also made me wonder is whether the transformation of assets from tangible to intangible only applies to big businesses or if it is a prevalent trend among contemporary businesses in general? To delve into the intangible world of intangibles (pun intended), let me share a firsthand instance from one of my favorite places that, as I assume, might exemplify this trend in small business.
What Made "Sweetwater Saloon" Highly Valuable
My favorite place in Mill Valley was and still is the "Sweetwater Saloon", even after renovation. There are very few places in the world where you can witness a live performance by genuine rock celebrities, truly experience their heartfelt performances up close, and even have the opportunity to communicate with them. And if you're lucky, you might even have the chance to share a drink with them. The Sweetwater Saloon is a place where great musicians gather to play music from the depths of their souls, attracting visitors from all over the Bay Area.
Jeanie Patterson and her then-husband, Jay, took over the "Sweetwater Saloon" in 1979. Initially, it was a shabby provincial bar where some locals dropped in for a couple of shots. Jeanie knew some musicians, and the idea to invite them came about. Fortunately, the Bay Area is home to many notable musicians. One of the first and most honored musicians to perform there was Jerry Garcia from the Grateful Dead, who agreed to play for fun. He was captivated by the charm of the local audience (Mill Valley is a harbor for artists and creators), which led him to perform there again. Word spread about the venue, and soon it attracted a multitude of rock stars such as Carlos Santana, The String Cheese Incident, John Lee Hooker, George Benson, and many others. Moreover, visiting artists who came to the Bay Area for concerts often visited the saloon to partake in jam sessions with local legends like Carlos Santana and Jerry Garcia.
Within a few years, the place became an icon, and Mill Valley along with it. Former Grateful Dead guitarist Bob Weir once said, ''For years, Sweetwater was the place many local and visiting musicians headed to when we wanted to play for fun... There was always a sense of fun.'' It was a great honor for me to witness these legends in person.
In short, Jeanie Patterson eventually retired and sold the "Sweetwater Saloon" to Becky and Thomas Steere in the late nineties. When the Pattersons sold the place, it wasn't just the cost of the tables, chairs, and cooking equipment; it was something much more valuable. The majority of the value lay in the intangible assets - the name "Sweetwater" itself, which made any music lover's heart tremble, just like mine. It was priceless, and it brought joy to both musicians and visitors, generating significant revenue. If the Pattersons had sold the place before it became so popular, would they have received as much money as they did later?
From humble beginnings, this music venue transformed into an iconic hotspot for rock legends, attracting visitors worldwide. This example illustrates how intangible assets work and the immense value they can add to a business.
Intangible Assets in Action
Furthermore, this example allows us to observe how the value of intangible assets impacts each of us. During the early stages of Sweetwater Saloon, the business primarily catered to the local community, with a modest number of clients. Visitors had the opportunity to enjoy a glass of liquor and engage in conversation with the phlegmatic barista.
However, within just a couple of years, the establishment transformed into an iconic venue, providing joy and entertainment to everyone. It revitalized the once sleepy town, making it an exciting destination. Isn't this a compelling example of how intangible assets affect consumers? It elevates both the business itself and the quality of service customers receive.
Another noteworthy aspect of intangible assets is their ability to drive business growth. As Sweetwater Saloon's popularity soared, the value of the business significantly increased, despite minimal changes to the physical elements like tables, chairs, and equipment. This demonstrates the transformative power of intangible assets, even for small businesses.
Currently, Sweetwater Saloon is flourishing, but if we were to inquire about the precise value of its intangible assets, no one would be able to provide an exact answer. The reason is that the value of intangible assets only becomes apparent when they are sold.
This realization prompted me to delve further into other examples of intangible assets and the factors that contribute to a business's value growth.
Beyond Physical Worth in Business Acquisitions
As it turns out, one fascinating example of intangible assets within a business's arsenal is its intellectual property, a treasure trove of intangible creations that truly make a mark. This collection may include musical compositions, boundary-pushing designs, iconic trademarks, software licenses, awe-inspiring cinematic productions, customer databases, and the rights to established franchises.
But when one company acquires another, certain assets go beyond mere physical worth, including the following:
- Brand Reputation: The extra value paid goes far beyond tangible assets, serving as a testament to the acquired company's esteemed brand reputation that has captured the hearts and minds of loyal followers.
- Intellectual Property (IP): By acquiring copyrights, one gains the exclusive rights to wield and distribute the acquired company's brilliant creations, adding a splash of exclusivity to the mix.
- Patents: Snapping up a company with patents bestows control over ingenious designs or groundbreaking inventions, like capturing lightning in a bottle.
These captivating elements come together to form a potent blend that fortifies market presence, perpetuates ongoing value, and bestows a true competitive edge. It's in these intangible realms where the magic happens, propelling businesses to new heights and leaving competitors behind.
It seems we've entered an era where assets are shedding their physical skins and donning intangible attire. However, this transformation isn't exclusive to the big sharks of the business world. Even the small fish are now swimming in these intangible waters, making waves of their own! While the big businesses have been leading the charge, armed with their deep pockets and fancy technology, we must not underestimate the plucky small businesses, as demonstrated by Sweetwater Saloon.